Written by Jamie McGeever
(Reuters) – Looking ahead to the day ahead in Asian markets.
“Step up, and be bold,” was the advice to Fed Chairman Jerome Powell and his fellow US policy watchers and even former policymakers, and they didn't.
The Federal Reserve cut interest rates by half a percentage point on Wednesday in a statement of intent that the Fed is ready to protect the labor market and prevent the economy from anything approaching recession.
Investors loved it, at first. , the Dow and gold all hit new records, the Russell 200 small-cap index rose nearly 2%, and the dollar fell.
But gains in stocks and gold faded and the dollar retreated from 14-month lows to close the US session on the day.
What gives? Perhaps the bond market's reaction was more general. Treasury yields have moved up across the curve, especially at the long end, perhaps because of underlying concerns about inflation and easy monetary conditions, or because the Fed slightly revised its long-term forecast for the fed funds rate.
This sends mixed signals to Asian markets on Thursday.
Who says big banks don't keep things surprising? Bank Indonesia's quarter-point rate cut on Wednesday was not on the cards – only three of 33 economists polled by Reuters predicted the move, while the remaining 30 expected the policy rate to be left at 6.25%.
Perhaps surprisingly, the rupiah did not move much and stuck to its strongest levels against the dollar in over a year.
Now that the Fed has taken its first step on its path to easing again, some central banks in Asia may feel more comfortable easing policy. But not Taiwan, not at least.
Taiwan's central bank is expected to keep interest rates unchanged on Thursday, according to all 32 economists polled in a Reuters poll, and will continue until the end of next year as it faces inflationary pressures.
The central bank left the benchmark rate at 2% as expected at its last quarterly meeting in June, having increased to that level from 1.875% at the previous meeting in March.
Investors in Asia also have New Zealand GDP, unemployment figures from Australia and Hong Kong, and trade data from Malaysia on their plate on Thursday.
Traders may also adjust positions ahead of Japan's inflation figures and rate decisions on Friday from the Bank of Japan and the People's Bank of China.
The dark cloud of inflation hangs heavily over China, especially the property sector. Previous housing market crashes around the world have suggested that it could take China a decade to recover from the current bursting bubble. And that's if prices return to their pre-bubble highs.
Here are some key developments that could provide further guidance for Asian markets on Thursday:
– Taiwan's interest rate decision
– New Zealand's GDP (Q2)
– Unemployment in Australia (August)
